Since Forbes hired me in 1995 to write a legal column, I’ve taken advantage of the great freedom the magazine grants its staff, to pursue stories about everything from books to billionaires. I’ve chased South Africa’s first black billionaire through a Cape Town shopping mall while admirers flocked around him, climbed inside the hidden chamber in the home of an antiquarian arms and armor dealer atop San Francisco’s Telegraph Hill, and sipped Chateau Latour with one of Picasso’s grandsons in the Venice art museum of French tycoon François Pinault. I’ve edited the magazine’s Lifestyle section and opinion pieces by the likes of John Bogle and Gordon Bethune. As deputy leadership editor, these days I mostly write about careers and corporate social responsibility. I got my job at Forbes through a brilliant libertarian economist, Susan Lee, whom I used to put on television at MacNeil/Lehrer NewsHour. Before that I covered law and lawyers for journalistic stickler, harsh taskmaster and the best teacher a young reporter could have had, Steven Brill.

Money Does Buy Happiness, Says New Study

Readers of Forbes may wonder, are those billionaires who can afford Feadship yachts, Graff diamonds and Lamborghinis really happier than the rest of us? Individual happiness, of course, is a complex thing. But those of you who are curious about the happiness of populations en masse will want to read a new study by University of Michigan professors Betsey Stevenson and Justin Wolfers.

Relying on worldwide data from Gallup and other sources, Stevenson and Wolfers determine that the wealthier people are, the more satisfied they are with their lives, at least when you look at nationwide figures. They also find, contrary to what many economists believe, that there is not a point of wealth satiation beyond which happiness levels off.

Do you feel like you know that already? Among economists, it has not been a settled point. In 1974, University of Southern California economics professor Richard Easterlin proposed a theory that came to be known as the Easterlin Paradox. He posited that within a country, be it the United States or Sri Lanka, richer people were happier than poor people. The paradox came when you compared rich countries with poor ones. Easterlin couldn’t find any evidence that people in rich countries like the U.S. were happier than people in poor countries like Sri Lanka.

Then Stevenson and Wolfers came along and in a 2008 paper, refuted the Easterlin paradox. They found that while the first part of Easterlin’s theory was true—within a country, rich people were happier than poor people—the populations of rich countries, as a whole, were happier than the populations of poor countries.

Still, economists debated whether there was a satiation point, beyond which people didn’t get any happier. A number of scholars, including London School of Economics professor Richard Layard, argued that once people had enough to meet their basic needs, somewhere between $8,000 and $25,000 or the equivalent of that in various spots around the world, happiness leveled out. Though Layard didn’t dispute that within a country, billionaires tended to enjoy their riches and demonstrate more happiness than their less-fortunate counterparts who were, say, single mothers working as home health aides, he believed that if you averaged out income in a given country, there was a satiation point, beyond which the country could not achieve greater nationwide happiness.

Stevenson and Wolfers started probing that idea, suspecting it was false. Using data on 155 countries from Gallup, the Pew Global Attitudes Survey, the World Bank and other sources, they found that as countries increase their GDP per capita, the more happiness levels rise. There is no point where that levels off. The richer people get, the more satisfied they are with their lives. “If there is a satiation point,” they write, “we are yet to reach it.”

The new study also takes another look at Easterlin’s theory that within countries, rich people are happier than poor people. They wanted to test whether there is a satiation point beyond which the rich don’t get any happier. Using a 2007 Gallup poll, they found people with the highest incomes report the greatest degree of happiness and satisfaction with their lives. For instance, only 35% of people making less than $35,000 say they are “very happy,” versus 100% of people making more than $500,000.

In their paper’s conclusion, Stevenson and Wolfers include a caveat: Nobel prize-winning psychologist Daniel Kahneman, together with economist Angus Deaton, has written that in the U.S., happiness levels off at incomes of around $75,000 a year. Stevenson and Wolfers don’t take issue with Kahneman and Deaton’s findings, though they note that Kahneman and Deaton were looking at different measures than those captured by the Gallup polls. Kahneman and Deaton focused on everyday experiences, using a poll that asked people about their positive and negative emotional states on the day before they answered the polling questions. While Stevenson and Wolfers relied on more sweeping polling questions about how satisfied people are with their lives overall, Kahneman and Deaton looked at so-called “affective” questions about how people felt at a specific moment in time. “The affective measure raises a puzzle,” says Wolfers. “No one has resolved that puzzle. It’s an interesting, open question.”

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What about the law of diminishing marginal results ? Shouldn´t money satisfy you less and less the more you get it? The implications of this finding for established theories like DMR should be interesting.

Also, it should be interesting to investigate Burma and monks in general, considered as very happy and nonetheless not wealth. As statisticians says: “Correlation doesn´t imply causation.” Perhaps those folks amassed all this wealth *because* they were happy people, and have put all this happiness in their work. There´s an interesting documentary called “born rich” which shows that people who were born in wealthy families but didn´t do anything were not happy. The only conclusion is that money is correlated to happiness, not that it causes it.

You are welcome, great article! I am always excited to know where this research on happiness X money is heading, even if I challenge the results, for this is how science progress. I love how you contrasted the many points of view and I think survey questions can provide lots of data for research, but finding causation can be tricky. Thank you for calling out my comment.

It gives you freedom that in return makes you enjoy life more. I also read that people who started at the bottom and made their own wealth are happier than those that inherited the money. Inherited money can be a burden and take the sense of value from the young they have no purpose in life so they feel. I think there are many factors that contribut to overall happines but money does help big time.

Seems silly to me. If I enjoy the persuit of wealth, then obviously success at that persuit is going to make me happy. If lounging on the porch makes me happy, then a big inheritance is going to create work and cause problems, and make me less happy.

Take alcohol, if I enjoy drinking, (even if in moderation), then a small amount of alcohol can make me happy. If I am a tee-totaller, no amount of alcohol can make me happy, it is the destruction of alcohol which will make me happy.

Which may explain why some people can’t be made happy with money. They prefer to destroy wealth. Others prefer to create wealth. We are all different, obviously we all don’t react to money in the same way. Not that money is wealth, but many people do confuse the two.

After reading about both studies, I must say I trust the findings of Kahneman-Deaton far more. This is due to two significant issues I see with the Stevenson-Wolfers study:

1. Their study is more open to psychological bias. I came across this opinion when I saw that 100% of people making over $500,000 reported themselves as being “very happy”. 100% seemed too extreme to be credible. You’d think that out of this pool, at least one of every 20 or even 30 or so would have immaterial issues that would outweigh the happiness gained from their wealth. I say this in part because my father is acquainted with people who are this wealthy whom he has by no means described as “happy” people, let alone “very happy”.

I think it is possible that a bias emerges since the people who make that much money WANT to think of themselves as very happy, given that they have probably worked extremely hard to amass that level of wealth and want to feel as though their sacrifice was worth it. They WANT to feel as though they’ve achieved the happiness they sought so ambitiously, the happiness they were so certain was connected with great wealth. They ASSUME they’re very happy because they’ve achieved great wealth, but don’t actually evaluate themselves deeply enough to support that claim or even discover that they aren’t actually very happy.

2) I also think it is possible that some people might mistake “very happy” for “very satisfied”. This is slightly related to my first issue. The people that have reached the $500,000 per year threshold are satisfied with the fact that they have achieved that level of success. They are satisfied that they’ve met their expectations of themselves or even others’ expectations of them. However whether they are truly HAPPIER on a day-to-day basis because of that wealth may be uncertain.

The Kahneman-Deaton study really forces participants to look within themselves and evaluate very specific psychological aspects at a momentary level, which controls for problems — such as those above — that can occur within a more retrospective, general approach. Mainly, the wealthiest participants in the Stevenson-Wolfers study may have appeared to be happier than the moderately and less wealthy participants without really believing what they stated or without knowing that they weren’t actually as happy as they thought they were.

all your billions can not buy you peace with GOD/ I rather have what god has put into my heart then all of your billions together / what am I talking about , the peace of GOD that you can not buy/ plus the fact I know if I die today/ I will spend eternity with god/ my question is , if you die today, will YOU BE WITH GOD, or the other place/ and to you people that do not believe, satan is the master of deception ,he has convinced you one of his biggest lies , that god and himself do not exist, so there are 2 choices / hope to see you in heaven